China's banks urged to readjust lending

As the country begins to phase out obsolete production methods in an economic restructuring drive, industries with overcapacity are likely to face even tougher financing terms this year.

In response to the government call to curb excessive capacity, the banking regulator earlier this year asked lenders to maintain strict controls on loans flowing into industries including steel, cement, plate glass, shipbuilding, electrolytic aluminum, the chemical processing of coal and polysilicon.

Liu Mingkang, chairman of the China Banking Regulatory Commission, said that commercial lenders should readjust their credit structures to support the country's industrial upgrading and restructuring drive.

"Loans to industries with overcapacity were growing at a significantly lower pace last year compared with that of the overall credit expansion," he said. Given that the country was considering an exit from the loose monetary policy implemented to counter the financial crisis last year, analysts said credit avenues for industries listed on the government "blacklist" were set to be limited. The Chinese government is targeted to give out 7.5 trillion yuan in new loans this year, lower than the record 9.59 trillion yuan lent in 2009.

Indeed, industries with excessive capacity have not benefited from the lending binge last year, as commercial lenders' loans to such industries continued to drop. China Construction Bank (CCB), the nation's second largest lender, said its loans to industries with overcapacity accounted for 12.8 percent of the bank's total outstanding loans as of the end of last year, down from 15.7 percent a year earlier.

"We've decided to gradually exit from lending to industries with excessive capacity, and will only support leading enterprises in these industries and projects approved by the government," said CCB Vice-President Chen Zuofu.

Bank of China, the most aggressive in pushing out credit among Chinese lenders last year, said outstanding loans for overcapacity industries declined to 219 billion yuan as of the end of last year, and account for 7 percent of the bank's total corporate loans.